CEO Address To Future Forests & Timber Conference
Address To Future Forests & Timber Conference
SYDNEY, 10 NOVEMBER 2003
STEPHEN JACOBI CHIEF EXECUTIVE NEW ZEALAND FOREST INDUSTRIES COUNCIL
“NEW MARKETS, NEW PRODUCTS, NEW SCOPE FOR CO-OPERATION?”
A few years ago I was introduced to the sayings of that great American baseball player and philosopher, Yogi Berra, who once said “the future ain’t what it used to be”.
That seems like a good place to start talking about the future of the forestry industry which going forward will have to look quite a bit different from what it is today.
It’s good to be here and I extend my congratulations to the organisers of this conference who have had the foresight to give this gathering a trans-Tasman dimension.
Not only are the futures of the Australian and New Zealand industries inextricably linked one to the other, but this year we are celebrating the achievement of twenty years of CER, the free trade agreement that has given rise to unprecedented trade and economic integration between our two countries.
I doubt that Yogi Berra knew much about Australia or New Zealand or about forestry, but the future and what it might look like are passionate themes for those involved in our industry.
Today I’d like to consider some of the key drivers for our shared future development.
I want to talk briefly about changing markets, changing products and the importance of free and fair trade.
And to suggest that securing the future should involve even greater co-ordination and co-operation between us.
Earlier this year in Queenstown in New Zealand’s beautiful South Island I attended the joint conference of the Australian and New Zealand Institutes of Forestry.
That conference, much like this one, was very conscious of how just how similar our industries are.
Both our industries show strong growth potential.
In New Zealand the harvest is expected to rise to around 30 million cubic metres by 2007, or a doubling since 1998.
The harvest from Australian plantations is also growing significantly – by 20 percent in the case of softwood and ten fold in the case of hardwood.
Governments in both countries recognise the potential for the industry to create jobs, particularly in rural or regional economies, and to contribute to overall economic growth.
In New Zealand the Wood Processing Strategy provides a framework for the industry’s cooperation with the Government much like the Forest and Wood Futures Action Agenda here in Australia.
But despite this potential both our industries are confronted with a serious challenge to our future prosperity – how to derive increased value from the forest resource.
The fact is that demand growth for forest products in expanding markets like China has been dominated by commodity products, the unit value of which continues to decline.
Continuing to chase these commodity markets will not enable us to deliver on the exciting potential for future growth.
We know that it is only by embracing a more added value future and by investing more in understanding consumers and developing innovative products that meet their needs that we can increase returns to owners and shareholders.
Just a few weeks ago the leader of the world’s most populous nation Chinese President Hu Jintao visited both our countries.
In New Zealand he gave us the welcome news that New Zealand radiata pine would be recognized as a structural timber in the new Chinese Building Code.
Achieving this recognition is something we have been working on for some time, not because it can be translated into immediate returns in terms of higher sales of construction lumber, but because without this recognition we could not even start the work required to position radiata in this enormous market of strategic interest.
Presently China’s population is around 1.27 billion people.
The average population growth rate from the early 80’s to 2001 was around 1.2 percent but is expected to fall to between 0.6 and 0.3 percent over the coming decade.
Meanwhile the Chinese economy has grown rapidly.
The consensus is that China’s GDP will continue to grow substantially by 7-8 percent per annum during this decade.
A virtually unlimited pool of cheap labour will prevent wages rising so that inflation can be controlled.
“To be rich is glorious” declared Deng Xiao Ping, and Chinese consumers have followed suit becoming more affluent and more sophisticated in their tastes.
The Chinese home decorative market is increasing by 15 percent a year and is worth today around $US 50 billion.
The retail market for building materials is set to grow to $40 billion in 2004 - an increase of 30 percent in two years.
These are big numbers.
The combined effects of an expanding population, sustainable economic growth and restrictions on the harvest of native timbers mean that China is set to become a major importer, rapidly turning into a major wood deficit area, the largest after Japan.
Any New Zealand and Australian strategy focusing on increasing market returns through added value exports cannot ignore the dynamics of an expanding and strategic market like China.
The challenge to understand tomorrow’s markets is matched on the supply side by significant changes in the way wood fibre can be used to derive value.
There are of course the traditional uses of fibre to produce solid wood and paper applications.
But new products, utilizing “low value “ fibre such as particleboard, OSB, medium density fibreboard and laminated veneer lumber are showing strong growth globally.
For example, in New Zealand and Australia supply of LVL is expected to reach 300 000 cubic metres by 2005.
These are all engineered products, designed to serve a particular customer need in a cost effective way.
Wood/plastic composites are encountering similar strong growth rates.
Along side this, there is potential to use woody biomass for energy generation, particularly as conventional energy costs rise and bioenergy becomes a more economically efficient option.
Forest Research in New Zealand is pioneering the development of biomaterials for conversion into products not yet thought of to tap into future consumers’ interest in sustainable product solutions.
And there are external sources of value such as those that can be created by forests attracting credit for their role in carbon mitigation whether or not through instruments like the Kyoto Protocol.
This increasing diversity of value will drive changes in decisions about when forests are harvested and what products are derived from them.
Any industry focused on adding value in production needs to be able to anticipate these changes and where possible integrate them into product development decisions.
Free and fair trade
As a former trade negotiator I cannot let this opportunity pass without mentioning the importance of free and open markets as the background against which we make decisions about both markets and products.
The World Trade Organisation gets a bad press – not helped by the spectacular dropping of the ball at the recent Cancun meeting - but it is the WTO that underpins international trade by maintaining a system of rules for the game and providing a means for bringing down the barriers to trade.
Tariff and non tariff barriers in forestry penalise added value production and restrict our ability to position radiata pine in higher value market segments.
Each year the New Zealand industry spends $40 million in tariffs, a figure which fails to take into account trade which does not occur because tariffs are too high.
Tariff escalation, particularly in Asian markets, is a particular problem where tariffs are higher according to the value added.
The cost of non tariff barriers – discriminatory taxes, rules and regulations, standards and conformity assessment procedures – is harder to estimate.
The figure we often use - $175 million – is probably way too low because it too fails to take account of trade which is simply cut off by red tape and discriminatory standards and practices.
The opportunity of the WTO’s Doha Development Agenda to achieve freer and fairer trade in forest products has been recognised by the international industry with six associations, including NAFI here in Australia, developing a common position for the negotiations.
That position focuses on:
eliminating tariffs and non tariff barriers clarifying procedures for anti-dumping putting in place more effective rules for subsidies.
Our industry group has focused on developing support for this position and presenting it directly to the WTO in Geneva last July and at the Cancun meeting in September.
In Cancun just before the opening of the Ministerial conference we organised a meeting of Ministers and senior officials together with the international industry to discuss ways of lifting the profile of forestry in the Doha negotiations.
The failure of Ministers at Cancun to reach agreement on moving the negotiation forward was a disappointment, but it is certainly not the end of the story.
As the momentum rebuilds in the WTO and we will continue to press our case for effective trade liberalization in forest products.
We would welcome support from the whole Australian industry for this effort, particularly from the plantation forestry and paper sectors.
The fact is that, like our two economies under CER, forest industries on both sides of the Tasman are increasingly integrated with one another: we are chasing essentially the same markets and we face similar challenges.
These challenges – of developing new markets and new products and of securing a more open environment for forest products trade – are bigger than just one industry and bigger than just one country.
Facing the future, these are issues we should be working on together to secure the outcomes that serve us both.
In North America a forum of CEOs has been established to look that these big, strategic, trans-border, cross-cutting issues.
The North American Council meets at least twice a year to:
Promote the growth of the market for forest products using groups like Wood Promotion Network Promote the environmental record of the industry Provide a forum for resolving potential trade irritants at the earliest possible stage. Formulate responses to emerging threats from competing suppliers or off shore subsidies. Act on any other issues relevant to the growth of the industry.
Perhaps it is time to consider something like this between Australian and New Zealand industries – a Trans Tasman Forestry Forum that would provide leadership in confronting the challenges of future market and product development.
Beginning a dialogue on international trade policy issues might well be a good place to start.
As Yogi Berra once said, “the future ain’t what it used to be”.
How we confront the future will determine the shape of our industries in the years ahead.
We do not lack for challenges, nor for opportunities.
New markets are at our doorstep, new product opportunities abound.
But doing more of the same old thing is not going to get us to where we need to be or to deliver the value that our owners and shareholders ask of us.
As international markets are freed up through the slow but sure process of the WTO, and the pace of international competition quickens, we must position ourselves more aggressively.
That means, inevitably, doing more together.
A Trans Tasman Forestry Forum could well be a useful mechanism for setting that shared agenda and moving us forward.